Navigating Government Bonds

What is the difference between a Treasury bill and a Treasury note? A note and a bond?

The government offers several alternatives for potential investors. T-bills, T-notes and T-bonds differ in terms of how long they take to mature and the types of payments attached to them.

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Bills – T-bills are short term bonds with maturities of up to 52 weeks. A T-bill is a pure discount loan, meaning that the price you pay up front will be less than the face value you will receive at the bond’s maturity.

Notes - T-notes have maturities of greater than one year and less than ten years. T-notes and T-bonds are interest only loans. Because of their longer maturities, the government pays these bondholders periodic interest payments. The coupon payments are semiannual.

Bonds – T-bonds have long term maturities, typically thirty years. They also pay semiannual coupons.

The market for long term bonds began shrinking in the late 1990s and in 2001, the government actually stopped issuing 30-year bonds.  They were reintroduced in early 2006.

The smallest denomination for all three securities is $1,000. All three are backed by the full faith and credit of the U.S. government. 

Since the government has yet to default on an issue, T-bills are commonly referred to as risk-free securities. Notes and bonds are believed to be free of default risk, however they are still subject to interest rate risk and inflation.

To learn more about, or purchase government bonds, visit TreasuryDirect.